The Old-Age, Survivors, and Disability Insurance program (OASDI) tax—more commonly called the Social Security tax—is calculated as a set percentage of your income. The amounts calculated are taken from each paycheck. Social Security tax rates are determined by law each year and apply to both employees and employers.
The Social Security tax rate that employees and employers each pay is 6.2% of employee compensation, for a total of 12.4%. Those who are self-employed are liable for the full 12.4%.
The combined taxes withheld for Social Security and Medicare are referred to as the Federal Insurance Contributions Act (FICA). On your pay statement,Social Securitytaxes are referred to as OASDI, and Medicare is shown as Fed Med/EE.
Both Social Security and Medicare are federal programs that provide benefits for retirees, people with disabilities, and children of deceased workers.
Key Takeaways
- The Social Security tax rate for both employees and employers is 6.2% of employee compensation (for a total of 12.4%).
- The Social Security tax rate for those who are self-employed is the full 12.4%.
- There is a limit (a tax cap) on the amount of annual wages or earned income subject to taxation.
- For 2023, the maximum amount of income subject to the Social Security tax is $160,200; for 2024, the maximum is $168,600.
- A common complaint about the Social Security tax is that it is regressive, which means that it is applied uniformly regardless of income (as opposed to a progressive tax, which is based on income).
Social Security Tax Rates
How Social Security Works
The Social Security program provides benefits to retirees and those who are otherwise unable to work due to disease or disability. Social Security often provides the only source of consistent income for people who can no longer work—especially for those with modest earnings histories.
Social Security is a government program funded through a simple withholding tax that deducts a set percentage of pretax income from each worker's paycheck.
Workers who contribute for a minimum of 10 years are eligible to collect benefits based on their earnings history once they retire or suffer a disability.
Social Security benefits are limited to a maximum monthly benefit amount based on earnings history. To prevent workers from paying more in taxes than they can later receive in benefits, there is a limit on the amount of annual wages or earned income subject to taxation. This is called a tax cap.
Wages Subject to Taxation
For 2023, the maximum amount of income subject to the OASDI tax is $160,200, capping the maximum annual employee contribution at $9,932.40. For 2024, the maximum amount of income subject to the tax is $168,600, capping the maximum annual employee contribution at $10,453.20. The amount is set by Congress and can change from year to year.
The wage limit is inflation-indexed annually and can be found in IRS Publication 15 for most employees, and in Publication 51 for agricultural workers. According to IRS Publication 15, wages subject to FICA (for Social Security and Medicare) include all income received for services performed, unless specifically excluded. Payment doesn't have to be by cash or check.
Wages include salaries, bonuses, commissions, and paid vacation or sick time. Payments in-kind, in the form of goods, lodging, food, clothing, or services, are also included unless the employee is a household or agricultural worker. Elective contributions to a qualified retirement plan are also subject to FICA.
Wages Not Subject to Tax
Employer-paid accident or health insurance premiums for an employee, including the employee's spouse and dependents, are not wages and are not included in FICA. Health Savings Account (HSA) contributions made by the employer are also not considered wages.
For example, Jeff earns $20,000 per year. He elects to contribute $4,000 to his 401(k) plan, and his employer matches 25%, or $1,000. As far as Social Security is concerned, his wages are still $20,000 (his elective deferral contribution is still subject to taxes). The additional $1,000 contributed by his employer is not. The Social Security tax withheld from his pay is $1,240 ($20,000 x .062).
Tax Overpayments
If an individual earns more than the Social Security tax cap from more than one employer, they may actually pay more taxes than required. When an overpayment occurs, that amount is applied to the individual’s federal tax bill or is refunded. Each employer must still match the tax contribution, but they do not receive a refund even if they become aware of the overpayment.
Calculating Social Security Taxes
Let's say that as an employee, you earn $165,240 per year, or $13,770 per month. In 2023, the maximum in wages that can be taxed for Social Security is $160,200, or $13,350 per month. Therefore you can expect to see taxes withheld by your employer in the amount of $827.70 per month ($13,350 x .062).
Bear in mind that if you are self-employed, you're considered both the employer and the employee for tax purposes. That means that you are liable for two 6.2% contributions for the full 12.4% tax rate. In the example above for 2023, a self-employed person with the same salary would pay $1655.40 per month for Social Security ($13,350 x .124).
On March 27, 2020, former President Trump signed a$2 trillion coronavirus emergency stimulus package, called theCoronavirus Aid, Relief, and Economic Security (CARES) Act, into law. It allowed employers to defer Social Security payroll taxes through Dec. 31, 2020—50% of the deferred amount would be due Dec. 31, 2021, and the other half by Dec. 31, 2022. The law applied to the self-employed, as well.
History of Social Security Tax Rates
The Social Security program was established in 1935. The payroll tax began in January 1937. At that time, the employee rate was 1%. It has steadily risen over the years, reaching 3% in 1960 and 5% in 1978. In 1990, the employee portion increased from 6.06% to 6.2% and has held steady ever since—with the exception of 2011 and 2012.
For those years, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the employee contribution percentage to 4.2%. Employers were still required to pay the full tax rate for their contributions.
Tax Cap Changes
The wage tax cap has existed since the inception of the program. It remained at $3,000 until the Social Security Amendments Act of 1950. It was then raised to $3,600 with expanded benefits and coverage. Additional increases in the tax cap in 1955, 1959, and 1965 were designed to address the difference in benefits between low-wage and high-wage earners.
The Social Security tax policy in the 1970s involved a number of proposed amendments and re-evaluations. The Nixon Administration argued that tax cap increases needed to correlate with changes in the national average wage index in order to address benefit levels for individuals in different tax brackets.
The 1972 Social Security Amendments Act had to be revamped due to problems with the benefits formula that caused financing concerns. A 1977 amendment resolved the financial shortfall and established a tax cap increase structure that correlated with average wage increases.
In addition to keeping up with average wage increases, the Social Security tax cap has also been increased to improve financing within the system and to provide reasonable benefit amounts for those who earn higher-than-average wages.
Worries About Program Insolvency
In the 21st century, a common worry is that Social Security could become insolvent due to longer life expectancies and a shrinking worker-to-retiree ratio. Analysts sometimes suggest raising the Social Security tax as a way to keep the program adequately funded. However, most politicians are hesitant to endorse this position because of overwhelming public sentiment against it.
A Regressive Tax
A common complaint about the Social Security tax is that it is regressive. Due to the tax cap, a person earning a relatively small amount of money sees a higher percentage of their income go to this tax, compared to someone who earns a relatively large amount. That is, anyone who earns under $160,200 in 2023 ($168,600 in 2024) has an effective Social Security tax rate of 6.2%. Someone who earns $1 million per year, by contrast, pays a much smaller percentage of their total income.
Taxes on Social Security Benefits
Not all taxpayers are required to pay federal income taxes on their Social Security benefits. Typically, only those individuals who have substantial income in addition to their Social Security benefits are required to do so.
If you do have to pay taxes on your Social Security benefits, you can either make quarterly estimated tax payments to the IRS orelect to have federal taxes withheldfrom your benefits.
The amount of your Social Security income that is taxable is based on your combined income. Your combined income is the total of your adjusted gross income, nontaxable interest, and one-half of your Social Security benefits.
If you file your federal income taxes as a single person, and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $34,000, up to 85% of your benefits may be taxable. If your combined income is below $25,000, all of your Social Security income is tax-free.
If you are married and file a joint return, and you and your spouse have acombined incomethat is between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If your combined income is more than $44,000, up to 85% of your benefits may be taxable. If your combined income is below $32,000, all of your Social Security income is tax-free. Finally, if you are married and file a separate tax return, you probably will pay taxes on your benefits.
If you receive Social Security benefits, every January you will receive Form SSA-1099,a Social Security benefit statement that details the financial benefits that you received in the previous year. Use this information when working on your tax return to determine if your benefits are subject to tax.
What Is the Social Security Withholding for 2023 and 2024?
For 2023 and 2024, the Social Security withholding rate continues to be 6.2%.
Is OASDI the Same As Social Security?
The federalOASDIprogram is the official name forSocial Security. OASDI is an acronym for Old-Age, Survivors, and Disability Insurance.
Can My Social Security Benefits Grow?
Yes, due to COLA increases after you start receiving them and, importantly, if you delay taking benefits from the year you're entitled to start drawing them through the age of 70. For example, in 2024, workers with the maximum in taxable earnings who retire at age 66 will receive $3,652 per month. If they retire at age 70, they'll receive $4,873 per month.
How Much Tax Will Be Withheld From My Social Security Check?
The amount of taxes, if any, withheld from your Social Security check depends on how much your total income is (the combination of your Social Security benefits, earnings, and more).
The Bottom Line
Social Security is taxed at the same rate for everyone: 6.2% for employees and employers, for a total of 12.4%. If you are self-employed, you pay the entire 12.4%.
Social Security is only taxed up to a certain level of income. In 2023, the cap is $160,200, and in 2024, it is $168,600. Beyond this amount, income is not taxed for Social Security benefits.
The Social Security tax is considered to be a regressive tax, as the burden is heavier on those making less income. Some experts suggest increasing the cap for wealthier individuals as a way to account for the expected shortfall in Social Security funding.
